Term vs. permanent life insurance, explained without the jargon

Life insurance exists for one main reason: to help the people who depend on you if you die. There are two broad types, and each is designed for a different job.

Term life insurance

Term insurance covers you for a set period, such as 10, 20 or 30 years. If you die during that term, your beneficiaries receive the death benefit. If the term ends while you are living, coverage stops unless the policy can be renewed or converted.

Because it covers a limited period and does not build cash value, term coverage generally costs less than permanent coverage for the same death benefit, especially when you are younger. Families often use it to cover the years when needs are highest, like while children are at home or a mortgage is being paid.

Permanent life insurance

Permanent insurance, such as whole life or universal life, is designed to last for your whole life as long as the policy stays in force. Many permanent policies build cash value over time, which may be accessed in certain ways during your life.

Permanent coverage generally has higher premiums than term. People often look at it for lifelong needs, such as final expenses, leaving a legacy, or certain business and estate planning goals.

Questions to ask before choosing

• Who depends on my income, and for how many years?
• Is my need temporary, lifelong, or a mix of both?
• What premium can I keep paying comfortably for the long run?
• Does my workplace coverage follow me if I change jobs?
• Does the policy offer living benefits or conversion options?

One family, both types

Some families use a combination: term coverage for the high-need years and a smaller permanent policy for lifelong needs. There is no one right answer, only the answer that fits your family's situation and budget.

This lesson is for educational purposes only and is not financial, legal or tax advice. Please consult a qualified professional for advice specific to your situation.